Question

Head-First Company plans to sell 4,400 bicycle helmets at $72 each in the coming year. Unit variable cost is $43.20 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Fixed factory overhead is $19,000 and fixed selling and administrative expense is $29,700. Required: 1. Calculate the variable cost ratio. 2. Calculate the contribution margin ratio. 3. Prepare a contribution margin income statement based on the budgeted figures for next year. In a column next to the income statement, show the percentages based on sales for sales, total variable cost, and total contribution margin.

Answer 1

Answer
1)	Variable Cost Ratio
	Variable cost per unit / sales price per unit
	$43.20/72=60%

2)	Contribution Margin Per unit
	Selling price - variable cost per unit
	=$72-43.20
	$    28.80

	Contribution margin ratio
	Contribution margin per unit/ sales perice per unit
	$28.80/72 =40%

3)
	Contribution margin statement
	Sales	$         3,16,800	100%	(4400 bicycle*$72)
	Less-Total Variable cost	$         1,90,080	60%	(4400 bicycle*$43.20)
	Total Contribution margin	$         1,26,720	40%
	Less-Fixed factory overhead	$             19,000
	Less-fixed selling and administrative expense	$             29,700
	Net Income	$             78,020